Once primarily associated with the textile and garment trades, factoring now provides working and growth capital for tens of thousands of domestic businesses in hundreds of diverse industries.
Ski Equipment Distributor:
A national distributor of ski equipment maintains a normal warehouse staff of three employees and about $500,000 in inventory. The distributor receives a $1,250,000 initial order from a new and very large national retail chain that has demanded 75-day terms of payment for goods delivered.
This is a very large order with more to follow. To complete the order and accommodate the new customer, the distributor is going to require additional inventory and more warehouse staff. The amount of the new inventory, however, is beyond the credit lines of the distributor.
The distributor currently has $250,000 in accounts receivable with thirty day terms of payment but most customers pay in 45 to 60 days. If the distributor could collect the $250,000 outstanding, it would have adequate capital to obtain the new inventory and hire more staff.
The distributor contacts US Business Finance to enlist the services of a factor. Upon contracting, the factor agrees to purchase the existing $250,000 in invoices for an immediate payment of $200,000 with agreement that after collection, the additional $50,000 will be remitted less the factor's fee for services of 3% per month.
After receipt of the funds, the client orders $1,250,000 in additional inventory and negotiates a 3% discount with $200,000 down payment and the balance within 10 days of receipt of the new equipment. The additional $50,000 received from the factor will be used for payroll and new warehouse staffing.
The distributor immediately delivers the equipment to the new customer and invoices for the agreed $1,250,000 which includes a $150,000 markup. The distributor immediately factors this invoice and is advanced $1,000,000 allowing for payment of the balance owed to the manufacturer, replacement of inventory and significant additional working capital for continued growth and expansion.